Manufacturing and Exports – China’s Future

Mark O'Neill January 07, 2026 17:32

With weak domestic demand and the property market in a five-year slump, it was manufacturing and exports that drove China’s economy in 2025.

It posted a record trade surplus of more than US$1 billion, up from US$992.2 billion in 2024, and BYD overtook Tesla as the world’s top producer of electric vehicles.

These two will be the drivers this year and during the 15th five-year plan for 2026-2030 that will be released in March, economists said.

The plan sees China dominating not only steel-making and toys – sectors it controls now – but also future technologies like robotics and artificial intelligence.

Last year its share of global manufacturing value rose to 28 per cent. Its share of the global export market reached 15 per cent, up from 13 per cent in 2017.

“This is a zero-sum game,” said Joerg Wuttke, a partner at consultancy DGA Group and former president of the European Union Chamber of Commerce in China.

Based on the goals in the five-year plan, he said that China could raise its global share of manufacturing to 40 per cent. “They are telling other countries, do not mess with us. Don’t compete with it, you cannot beat us.”

This success is a result of the strategy of President Xi Jinping to pour resources into manufacturing, especially of high-technology products and industrial self-reliance, with state loans and grants and generous policies.

The export boom is good news for China but increasingly unsustainable for its trading partners. Last year its goods surplus with the European Union was 305.8 billion euros, compared with 297 billion euros in 2023 and a record 397 billion euros in 2022.

In an article in the Financial Times last month, French President Emmanuel Macron said that these trade imbalances were becoming “unbearable”. “China must address its internal imbalances or Europe will have no choice but to adopt more protectionist measures,” he wrote. Last month he expressed this view to President Xi Jinping in Beijing, but received no satisfactory answer.

In a report last month entitled “Dealing with Supply Chain Dependences, Challengers and Choices,” the EU Chamber of Commerce in China said: “Irrespective of China’s overproduction issue and record-breaking export performance, preliminary releases of information on the forthcoming 15th Five-year Plan make evident that China will retain a focus on self-reliance and establishing ‘complete industrial systems’ at ever higher levels of technical sophistication, and that there will be continued industrial policy support for key sectors.

“All things being equal, the present-day deflationary environment and the disparity between supply and demand—often stemming from key industries subject to industrial policy support, including industries important to Europe—is unlikely to fundamentally change. This is causing significant concern in the EU for two related reasons. First, one of the ways that China is trying to compensate for its supply-demand imbalance is by maintaining its focus on export-driven growth, with the EU one of the main recipients of its exports. This has already resulted in some industries that are vital to European economic security coming under pressure from low-priced, quality products, supported by a weak Chinese exchange rate and industrial policy measures,” it said.

The exports were helped by a depreciation of the renminbi by eight per cent against the euro in 2025 in normal terms. Economists estimate that, against a broader basket of currencies, the currency has fallen by 18 per cent from its peak in March 2022.

What Europe and China’s major trading partners need, then, is a drastic shift in policy, to stimulate domestic consumer demand, increase medical, pension and welfare spending and measures to rescue the property market.

How else can they protect their industries from the rising tide of Chinese products as it moves up the technology chain? Quotas and tariffs are difficult to enforce and will lead to retaliation by Beijing.

In an analysis in the Financial Times late November, Robin Harding asked the question of what China would import in the future. “There is nothing China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigner a single day longer than it has to.”

For the moment, China still needs to import semiconductors, software, commercial aircraft and the most sophisticated kinds of production machinery, he said.

But, once it can make them it will, and then export them. “If China does not want to buy anything from us in trade, how can we trade with China?”

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.